Sunday, October 15, 2017

BorgWarner Delivering The Content Growth

BorgWarner (BWA) has had a good year. I last wrote about the stock around the time of its 2016 investor meeting and thought then that the stock was undervalued and that the Street was overly pessimistic about the company’s positioning for the eventual transition away from internal combustion engines. It also didn’t help matters that the company hadn’t been doing a great job with its quarterly financial results vis a vis management guidance and analyst estimates. Since then, organic growth has improved significantly and the company has made a pretty compelling case for how and why it will continue to be a leader throughout the process of electrifying passenger vehicles. The shares have certainly responded – rising nearly 50% since that last article.

It’s harder for me to bullish now given the valuation. I don’t think the company is likely to get the FCF margin leverage it needs to validate today’s price on a DCF basis, though I freely acknowledge that content/share growth and margin leverage are more important drivers to the shares of auto components companies in the short run. This is back on a watchlist for me now, though, as I would like a better balance of opportunity and risk before committing funds to a position.

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BorgWarner Delivering The Content Growth

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